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spk21: Ladies and gentlemen, thank you for standing by and welcome to the ITE second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Investor Relations Director. of IT. Lei Chang, thank you. Please go ahead.
spk20: Thank you, operator. Hello, everyone, and thank you for joining IT's second quarter 2020 earnings conference call. The company's results were released earlier today and are available on the company's investor relations website at ir.it.com. On the call today are Mr. Yu Gong, our founder, director, and the CEO, Mr. Xiao Dong Wang, our CFO, Mr. Xiao Huiwang, our chief content officer, and Mr. Xiang Aiyang, senior vice president of our membership business.
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spk20: Mr. Gong will give a brief overview of company's business operations and highlights, followed by Xiaodong, who will go through the financials and guidance. After their prepared remarks, Xiaohui and Xianghua will join Mr. Gong and Xiaodong in the Q&A session. Before we proceed, please note that the discussion today will contain forward-looking statements made under the safe harbor provision of the U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but not limited, to those outlined in our public findings with the ICC. ITE does not undertake any obligation to update any forward-looking statement except as required under applicable law. With that, I will now turn the call over to Mr. Gong. Please go ahead.
spk05: Hi, everyone. Thank you for joining us today. As of yesterday, that match has changed around the world since our last earnings call. Like many other companies in the industry, we have experienced and usual user behavior, flat trading numbers, and great challenges. Clearly, the pandemic is the most influential factor to us and other businesses in the first half of this year. All subscribers, MEU, and the user time span all peaked during the first quarter, cut off home and confinement with the pandemic gradually. being controlled in Q2 earlier than most of other countries. People went back to work and the students in China started to study online and prepare for critical exams such as national entry examination for college and high school and the final exams, all which took place in June and July. As a result, we saw decline in both people's video view time and frequency in Q2. The pandemic also influenced our content supply. Movies, especially theatrical movies, have served as one of our most important content categories in user acquisition and membership attraction. Due to the shutdown of cinema, No new movies were released online. Online video platforms, which act as a second window for star article movies, are also facing supply shortages and adverse effects to subscriber retention and acquisition. Fortunately, the cinemas in China were permitted to reopen on July 20. with limitation of 30% attendance rate soon. Considering the average attendance rate of last year was lower than 30%, we believe that even with limitation, the offline movie industry well can be normalized step by step. We expect more movies will be released in cinemas and the amount will increase. possibly peak during October national holiday. This movie could be aired on internet in two to eight weeks after the offline window. The supply recovery will somehow improve our subscriber growth and the sickness in late 2020. The pandemic also delayed the new episode airing of Japanese animation. which normally generates half of the traffic in our animation channel. Good news is that the release has been resuming since June end. By late July, almost all Japanese animations have come back, and our playing members' growth and retention will benefit from it gradually. As all varieties show, the pandemic somehow affected the production and that resulted in release delay. On the other hand, our pipeline needs to be adjusted according to the postponement of advertisers' self-promotion, considering brand advertising as the key driver for our variety show revenue. Currently, the good news is that this delay situation is being eased and all these delayed variety shows will be released gradually. Therefore, it will have a positive effect on advertising business. Soon, it will take time for financial to reflect. Then, as already shown, the drama series production has also been delayed from one to three months in general due to pandemic. But considering the much longer production cycle for drama, This kind of delay will not influence much on the releasing time. We will also take all measures to mitigate the possible risk on drama title release next year.
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spk05: Now, let's go through the first stage of this call here. starting with our membership business. As of June 30th, our total subscribers were 104.9 million. Subscription revenues go by 19% year-over-year to RMB 4 billion because of weaker content set of inclusive drummers in Q2, together with the above-mentioned reasons. our subscriber number decreased. Having said that, we believe the second quarter membership slowdown is temporary as all subscribers are already responding from the end of June. We are also encouraged by all the positive signs we are seeing. As Justin said, the AdWords' effects on content supply receding along with the pandemic containment in China, although it may take some time to fully recover. With our content service getting better, we believe these new users will stay in or come back later to our platform. Additionally, our user data proved the large demand potential for long-form videos in lower tier cities. Most importantly, while steadily improving our original production capabilities, our 40-plus in-house studios kept working on projects across various genres, including dramas, reality shows, movies, animations, and more. Many of the original titles launched have shown extreme popularity and more exciting titles will be on air in succession soon. In a war, despite the temporary volatility, we are still confident that our membership business will show healthy and sustainable growth over the long run. In the second quarter, our high-quality content continuously drives subscriber growth as an innovative operational strategy, we launched Meet the Shelter. A new content library offers a rich collection of hell episode suspense dramas. It shows strong appears to users and enhances user intention and a thickness to our platform. Instead of the too-just-a-specific title, for variety shows, We grant subscribers privilege of advanced viewing and inclusive drive to content with a wider range of titles, such as Idol, Producer 3, and MCVR 2. We also keep deploying new movie releasing strategies. For example, we launched a mobile movie without the premium video on demand mode. people know, including the action-adventure fantasy movie, Double War . Action movie, Knockout, movie, Springtime, and the Oscar-winning movie, Marriage Story. Double War become an instant hit on our platform with its cinema-quality audiovisual experience with our online screens, demonstrating promising potential of pivot mode. In the future, we will release more high-quality movies via this mode. Top drama such as our hit title, The Bad Kids in Ni de Jiao Luo, generated in mass traffic and act as key drivers for subscriber growth. Meanwhile, some content titles especially those high-quality original ones that have been available online for over one year still come brokenly in and out the top content list in terms of new subscriber attraction retention. There is no peaceful increase in the lifetime value of our library content as our premium original titles are accumulating. As our subscriber base tops the 100 million back, we need to innovate in membership service and our products to cater to users that work in months. We further optimize our membership system by launching the iSdiamond membership package on May 23. This iSdiamond membership integrates content offerings of all gold membership, cartoon membership, literature membership, VR membership, and sports membership. And the grants access through multiple devices. including mobile devices, PC, smart TV, and VR devices.
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spk05: The advertising business continues to be softened in the second quarter due to the advertisers' budget cuts. The traffic declined after people went back to normal life and assembled for additional production delays. However, we are seeing a slow rebound of the business in the turbulent macroeconomic environment. Ad revenue grew slightly compared to the first quarter, and the average customer spending also improved sequentially in terms of advertising vehicles, food and beverage, bathroom accessories, telecom services, and consumer electronics, showing a relative rapid recovery. We are also exploring new initiatives for ad monetization. For example, top players from our original blockbuster show, Idol Producer Suite, hosted live commerce with the famous KOL agency, attracting nearly 20 brands to advertise with us. This kind of e-commerce shows further enhanced IT value, while directly drives brand awareness and self-convention. Meanwhile, the nine, the core group from Adobe Producer Suite have received commercial endorsements from more than 15 top brands, including Dell, MungFuSpring, in just the last two months. Leveraging the popularity of the Go team, we will continue to conduct commercial cooperation to drive long-term business value. Our advertising business is also empowered by technology innovation. We utilize AI to create ads more property as viewer acceptance for AI advertising placement is as high as 75% according to the third-party data. We also upgraded our video in-app format, enabling auto-insert of apps that seamlessly match the theme and the plot. Looking ahead to the second half of the year, we expect the advertising business to remain under pressure. We believe it will recover, but it might take some time. We are seeing some resuming of advertiser confidence as the pandemic becomes under control and all content production has returned to normal. Going forward, we will further expressing our content library and experiment more innovative formats to better mitigate risks from the challenging micro-environment. Moving on to the content, in the second quarter, our premium content arose widespread attention domestically and abroad. Some of these drummers A number of our original titles gained popularity, visibility on the social media, excitement. In Q2, we launched up for nails. We launched up for nails of Winter Begonia. And we are all alone . a realistic title reflecting the situation in the entertainment industry, which both become trading topics on social platforms. The fantasy 《Yi Ni De Jiao Luo》, the second drama, aired underneath the theater, becomes an overnight profession after its release. It is called as a fancy drama title in the first half of the year, with an initial rating of 9.2 on the bar. From the iconic story of Yanxi Palace in 2018, to Formulo the Thronger in 2019, to the highly praised short dramas meet the theater this year. We have built records with our diversified original blockbusters for this year, leading the online drama market. For our variety show, we cater to diversify the demands from our users by analyzing their watching habits and likes. As an intention of our top original variety show, Idol Producer 3 turned out to be another access success in the first half of the year, domestically and internationally. In addition, exclusive shows like MCZR2, It's My Life, and Amazing Dinner also received positive feedback during the quarter. Our original CD animation series, The Old Squad, that premiered on July 15 on our platform, air on Nickelodeon Asia Channel from this August.
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spk05: Additionally, there will be three original movies. are under post-production. More movies are under-shotting or to start-shotting within this year. All of this will further strengthen our content supply. At the 26th Shanghai TV Festival, our original title is a surrender won the Best Drama Award and the Best Screenplay Award. It is the first internet drama series that wins the Baiyubanjia. Moreover, at the 23rd Shanghai International Film and TV Festival Internet Summit, we self-produced the drama series, including the film The Detective Chinatown and Waiting for You in the Future, won the annual Online Drama Award. Well, our original variety shows such as the Big Bang and MCZ are well over the annual variety show awards. Additionally, our original documentary film, a documentary film, Touch Out, won the Best Documentary and Audience Award at the 14th First International Film Festival. Looking at the second half of 2020, there have been and there will be more hate content in quality, including reunion, the sound of the providence, one of the lost tombs area, 20-year-old life on ping pong lot in Shanghai. the Bloom's and Ruyi's prevailing and Heka Lu's no-go as the market recognized meat seltzer for its innovative model and special category. Over the next two years, we will gradually launch more of these distinctive themed seltzers to cover diversified categories. In addition, the third quarter is a hot season for variety shows. Our pipeline consists of creative titles, including Summer Surf Shop and Dimension Nova, as well as multi-seasons such as Big Bang 2, Mr. Housework, Season 2, and The Wrapper of China 2020. We believe these shows will bring us young audiences vibrant and positive energy especially under the pandemic-exiting period, building up an emotional and lasting connection with our audience. Our R&D capabilities are one of our core competencies. In this quarter, we launched a technology support for the AV1 video coding format that's available on both PC and Android devices, boasting significant advantage in transmitting higher quality video content, receiving almost a 20% bandwidth. From user perspective, It allows viewers to enjoy ultra HD video using less data without losing the quality. In facing adversities, our employees have risen to the challenge and demonstrate incredible creativity and commitment to our company and our mission. And we couldn't be more proud of them. Well, it is hard to predict precisely when there will be full resuming of all business segments. We have already discovered a silver lining in the fact that our users have demonstrated their tremendous creation and affinity to our original content. And our content partners and advertising customers always show us their strong support. All of this has solidified our confidence and determination to further develop our strategy vision for our business and deliver an exceptional entertainment service with a substantial collection of IT assets the outstanding content from our creative engines and our robust technology platform, we will emerge from this challenging period in a strong position and continue to drive great long-term value for our shareholders. With that, I will turn it over to Xiaodong to talk about financials.
spk07: Good morning, everyone. Let me comment on our financial highlights. Despite the block high micro-environment in China, we deliver another quarter of growth with total revenue increased 4% year-over-year. Our membership business continues to be the main business driver with revenue up 19% year-over-year, accounting for 55% of our total revenues. Our advertising business continues to be soft with revenue decline year-over-year due to the higher budget costs, traffic decline after the pandemic, containment, and the delay of the September ratios. Both our cost of revenues and operating expenses decreased year-over-year, and our content cost only up 2%. We kept spending strategically on original content to drive in-house production and mobility while making wise and disciplined investments across the board. As a result, our operating loss margin narrowed to 17% from 26% in the same period. Last year, our net loss decreased to RMB 1.4 billion from RMB 2.3 billion in the same period last year. As of June 30, 2020, the company had a cash-to-cash equivalent, restricted cash, and a short-term investment of RMB 9.5 billion. For detailed financial data, please refer to our press release on our website. By the third quarter of the year 2020, IT expects the total net revenue to be between 6.95 billion and RMB 7.4 billion, representing a 6% difference of that year-over-year. This forecast reflects IT's current and preliminary view subject to change. I will now open the floor to Q&A.
spk20: Operator, please.
spk21: Thank you. Ladies and gentlemen, we will now begin the questions and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the power or hash key. Please ask your question in Chinese first and then translate the questions into English. To give opportunity to others, please limit to one question each time. Your first question comes from the line of Wendy Chen from Goldman Sachs. Please ask your question.
spk02: Thank you for accepting my question. My question is about the growth of our paid users. I would like to ask, as Mr. Gong mentioned, the growth of our current members has some signs of coming back in June. I would like to ask, after the high school entrance exam is over and we enter the peak season of the summer, how do we see the growth of paid users in the second half of this year? And in the long term, what level do we expect paid users to grow? Thanks for taking my question. So my question is about the subscriber growth outlook. We mentioned that the subscriber growth momentum has come back since the end of June. So wondering how do we see the subscriber growth so far for the past and also for the second half of the year as the college entrance exam ended and the summer peak season started? And also how do we see the subscriber level reaching in the medium to longer term? Thanks.
spk05: After the end of the college entrance exam in early July, the flow of students increased significantly. However, because of the pandemic and the delay of the college entrance exam and the time of the mid- and high school entrance exam, it is not the same as the previous year. The time of the entrance exam is also not the same. Therefore, the trend is clearly increasing, whether it is the flow of students or the number of members. However, it is difficult to estimate the exact number now.
spk20: Yes, thank you, Wendy. You are correct that the examination for the interest of the colleague already ended in July. But to consider in this situation, this summer break is different from normal seasons. For example, the examiner is declared one month. and also the other that we will shorten holiday summer break for the high schools and maybe junior high school students as well so that we cannot predict precisely on the net end the numbers, but we are seeing the very clear change on the rebounding of our traffic and the subscribers. Thank you.
spk21: Thank you. Your next questions come from the line of Thomas Chong from Jeffery. Please ask your question.
spk19: 早上好,謝謝管理長接受我的提問。 我的問題主要是關於 advertising 跟我們的 new initiative 的。 想問一下就是我們看下半年, 剛剛龜總也提到就是從廣告那邊, 環比了有一個恢復, My question is about the advertising outlook in the second half. Given that we are seeing some kind of recovery in Q3, how should we think about the momentum for KA as well as SME? And my second part of the question is about our mid-form video strategies in the second half. Should we expect there will be a step up in sales and marketing and any KPI that can be shared would be great? Thank you. Okay, thank you.
spk05: The advertising revenue of iQIYI is mainly brand advertising revenue, which is a very large proportion of KA advertisers. With the recovery of variety shows, the amount of KA advertisers investing in iQIYI is clearly increasing, but it may take some time to react from the financial report, because our new variety shows are in August, some in September, and some in October. This is the peak. uh uh uh So for the first question, and yes, I think our most revenue comes from the
spk20: brand advertisement. So KA represents a large proportion of our ad revenue. As we can see, the KA brand advertisers said that their budget is coming back after our variety show is gradually to be on air. But it will take some time to reflect in the financials. because I think that some of our new variety shows will be aired on August and some maybe on September and possibly peak on October, so that it will take some time to reflect in the financials. For the in-seat advertisers and for the SME advertisers, I think it does not account for so much of our advertising revenues, even that there's some rebounds, it will not reflect too much on the financials. Regarding the Suike, we did a variety of activities on the market promotion and the technology platform building, and also we put efforts on the community setup for the fans. But there is, there has been some progress already, but we need some time to build it into the large scale. And I think that the most of the advertisement in the CEQA will come at the form of the in-fit advertisement, and the inventory will not be that much, so that we don't see much of the reflection on the other revenues from the CEQA perspective. Thank you, Abby.
spk21: Thank you. And now we have Alicia Yap from Citigroup. Please ask your question.
spk03: Good morning, everyone. Thank you for accepting my question. My question is that I would like to ask the management to sort out all of our deadlines. How many films have we produced so far? How many shows have we produced? If we have finished producing, will we be able to release them at any time? And if we are still shooting, will we be able to sort them out? In addition, if we are ready to release them, will we have to wait for a while? We will wait until the advertising period is over. We will wait until the advertising period is over. We will wait until the advertising period is over. We will wait until the advertising period is over. We will wait until the advertising period is over. We will wait until the advertising period is over. We will wait until the advertising period is over.
spk05: Okay, thank you. Let me answer the previous question. Different types of content have different rules. Let me start with drama. Drama is mainly influenced by a few factors. The biggest factor is the production cycle or the purchase cycle. This is the first point. The second point is that it is influenced by the review. The main source of income for variety shows is advertising. So the time it takes for the advertisement to be broadcast and whether or not it can be broadcast is very important. Most variety shows need to have an ROI assessment before they can be broadcast. Of course, it also has to do with the production cycle and the review cycle. Reviews have a relatively small impact on variety shows. Uh,但是也有少量的综艺节目我们认为有更多的意义除了广告收入以外有更多的意义或者是我们坚信播出的时候广告收入 一定会逐渐的增加达到一个满意的ROI的评估这时候也在没有签约的情况下播出这只是少量的
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spk20: For example, the drama that there are few influential factors regarding the scheduling. The first two are most important ones, including the production cycle or license cycle. The second one is the regulation cycle. And also that it may have some influence from the advertisers, but not much. But the variety shows that the things that most of the revenue comes from advertisers. So it will be determined mostly by the advertiser's budget and their promotion activity schedule. So most of them, the variety shows that needs to be aired or the productive or scheduling based on the contract agreement with the major advertisers or that appropriate ROI assessment. So that only a very few of the variety shows that we decided to schedule anyway, it's because they have, there has to be more meanings to our platform or that we expect that the revenue will gradually increase after as long as it is broadcasting. So that meaning in that case, we may schedule it on air that even without agreement with advertisers. Now, Xiaodong, you answered. Sorry, Mr. Wang, to add some points on this question, please, later.
spk05: And then for animation, for Anqi, the daily flow rate is more than half. So this time, because of the pandemic, animation delayed and updated, which has a greater impact on Anqi. So in the future strategy, we will This investment is more for domestic animation. For movies, the main source of movies in the industry is the second window period after pre-pandemic movies. Because of the impact of the epidemic, pre-pandemic movies almost did not appear in half a year, so it led to the end of the supply of pre-pandemic movies. So because Aikido In the film industry, the market segment is absolutely unique. So, relatively speaking, it has the greatest impact on the film industry. On the one hand, on July 25, there is already an appointment for the film industry to go to the cinema. And then, I estimate that by the end of this year, it will be a peak. Then, usually after two to eight weeks, it can go online. So, the contribution of the film industry will gradually be reduced. On the other hand, Also, for the scheduling on other two content category, animation and theoretical movie set,
spk20: Think that the Japanese animation generates half of our traffic in our animation channel. So just to break up the pause of the Japanese animation, new episodes releasing somehow influenced our animation traffic as well. But in the future, to cope well with this kind of possible risk, we will invest more on the domestic animation production. But the theoretical movies that we can, everybody can see that for the half a year, there's no theoretical movies released offline. offline. That's because of the, also because of the we ranked number one on the movie traffic compared to other platforms that this kind of the shortage on the content is why that somehow influenced us more regarding the theoretical movie. It's good news is that the cinema already reopened from July 21st. We expect that more and more movies will be released offline and possibly after two to eight weeks that it will be aired on the internet as well. Possibly that the national holiday will be the peak time for the directed movie release. Also that to further better coordinate with the kind of possible risk that we will invest more original movies and the quality will to the same as the theoretical movies. And we will do more to compare, to cooperate with this kind of risk and to build up our own self as the movie competence and independence as well. Thank you.
spk07: I think a couple weeks after the short-term report, we received an inquiry from both NASDAQ and the SEC. And the inquiry on a confidential basis, however, to disclose this inquiry at this time because we want to be transparent to all the investors. That's basically the logical behind. Thank you.
spk03: Thank you.
spk21: Your next question comes from the line of from China Realism. Please ask your question.
spk04: Thank you, Mr. Guan. My question is also related to the stock market. One is because this year's If your insurance claim says this is a flat screen TV, then we say it's insurance fraud. Learn more at stampoutfraud.com. OK. So two questions relating to the membership services revenue. One is due to the delayed launch of some PE drama shows and variety shows in the later half of the summer break, I just wonder the seasonality for the rest of the year. So are we going to see a more balanced membership growth? between 3Q and 4Q this year versus prior years. And secondarily, the management mentioned a few areas to increase the output of your members. So just to wonder what's the organic output growth for your members. Thank you.
spk08: Hi, my name is Yang Xiaohua. I'm a member of NCA. Generally speaking, in the early stage It's the peak of our traffic year, so the growth of the members is the highest every year. Of course, it will also be affected by the content. The year-to-year comparison has a great deal to do with the program we broadcast. Sometimes when we broadcast a very good program, we grow very fast. Sometimes there are times when the program is not that good, so the growth is a little slower. But usually in Q3, the growth is relatively high throughout the year. As for some changes this year, because of the shortness of time and the uncertainty of the epidemic, what we have seen so far has begun to recover. Compared to Q2, our content is also recovering, and the traffic is also recovering. As our SVP of the members of the business, Mr. Yang Xianhua, just answered a question.
spk20: that yes, you are right, Q3 normally is the peak season for our traffic and the same as our subscriber additions. But normally that is also highly depending on our content supply as well. Some of the summers with the really heat broadcasters will have the higher traffic and subscriber additions, some are not. But for this year, with the influence of the pandemic and also relatively shorter summer break that we cannot predict or anticipate precisely about the number of the net ends of the subscribers. But it's very clear that we are already seeing some rebound from the Q2 end, and we hope that the trend will continue for the increase. But again, it may have some uncertainties on that. Thank you.
spk21: Thank you. And now we have Billy Leung from Haitong International. Please ask your question.
spk13: Thank you for accepting my question. My first question is also about our members. Because we also retired S member in May. So I would like to ask Mr. Guan, can you share about the development of S member? For example, are there any numbers that you can share? And actually, is the performance of S member within our expectations or lower than our expectations? This is my first question. The second question is about the SEC's investigation. I would like to ask, I see that we are... We have done an internal investigation in this project. Why haven't they got any results in the last four months? Is it because of the pandemic or the investigation? How long will it take? Thank you. Thank you.
spk08: My name is Yang Jiahua. I will answer about the membership part. On May 23, we launched our new membership brand, Xinzuan membership. Thank you.
spk20: Thank you for the question regarding the iSTEM and the membership. And yes, that's from the May 23rd that we launched our new membership package, iSTEM and membership to cater to our diversified membership propositions. since that it is only launched for more than one month, that's until the Q2, and we didn't see it account for too much on our relative very big massive user basis. So that, but it is, it did meet our expectations, and we have the expectations on this to further improve our subscriber monetization. Thank you. Xiaodong will follow with the next question.
spk07: Regarding the internal review on the ACE-CS queries, I think you're right. It's been almost like four, more than four months past. But you have to understand it's an internal, independent internal review. So we don't know exactly the result and the status right now. What I can tell you is the voluntary disclosure of this investigation itself actually showed the confidence of the management on the potential results of this internal review. We do believe, due to the solid and disciplined internal control process and the corporate governance we've built in the past 10 years, together with the corporate culture we promote in the company, we do believe the results will be quite positive to the company. That's our belief. And also here, because a lot of people are asking similar questions, I just want everybody, including those non-Chinese-speaking investors, I think you have to understand, unlike those short sellers or the politicians, we are some... We are people who create, not destroy. We are someone who pursues dreams, not interests. So I do believe together on the leader of Dr. Gong Yu, we will be up again. We will show all the investors the quality of the company and the potential of the management. Thank you.
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spk09: Liberty, Liberty, Liberty, Liberty.
spk21: Thank you. Your next question comes from the line of Tian Ho from TH Capital. Please ask your question.
spk04: Good morning, management. I have a question for you. The question is about our new diamond members and our super-price points. Will there be a conflict? Because you are a diamond, you won't be able to see anything. It doesn't matter if you are super-price or not. Will this have any impact on this? In the past year or so, we have been trying out new transformation methods. Looking at the fee rates of each of our members, ARP and Netflix are indeed far behind. Does this have to do with our transformation methods? We have been trying to see if there are any new transformation possibilities in the future. This is the first question. I will ask the second question. In fact, I am thinking that in China, whether it is paid music or paid video, can it really support a company as big as iQIYI? Should it be paid music? so the first question is is i want to see if the company can give some color on the uh diamond members and see if there's a conflict. So that's one. Number two is I have this doubt the member, revenue from member, if that can actually sustainably support IQ, you know, this kind of market cap. If there are some other ways of accomplish much bigger monetization in addition to the member fee. So what's the thoughts on that from management? That's two questions. Thank you.
spk08: Hi, I'm Yang. Let me answer the first question. We want to provide users with different options for the launch of the new version and the super radio. In fact, different consumers have different views on what model to buy our super radio service. So we have launched a different model based on the needs of different consumers. I think these two may seem to be in sync, but in fact they are not. From the perspective of the consumer, from the perspective of the company, we hope that in the future, we will explore all kinds of possible ways to make money for users, or to make users willing to pay for some services or some content. As you just mentioned, the difference between us and Netflix is that China and the United States exist in a huge gap in terms of content consumption. In the past nearly ten years, In order to make users willing to pay for the content and subscribe to some services, we actually made a huge, made a lot of decisions. In the middle, there are a lot of new attempts, new plans to be launched. Some have succeeded, some have not succeeded. But in the end, we found that in fact, consumers in China are not willing to pay for this. This view is wrong. Now you can see that the consumer membership has exceeded one billion. And in addition to video, other industries are currently The development of the membership business is also very rapid. Members of music, literature, music reading, and so on, all of them are developing in this way.
spk20: Okay. After that, you can see that we developed a variance of the subscriber fees and other monetization methods. mostly to cater to different choices and options of our customers. I think that we have a massive user base. And this seems controversial, but fundamentally it's not connected to each other at all. And also that we will further explore a possible monetization method to cater to our users' demand and without any adverse feelings from our users. As we can see that exploring for the subscribers or paying or users that monthly, yearly, there's many exploring in the history. And until now that we can admit the current user trend and the user willing to pay for the content or other entertainment forms, the trend is clearly going up. And we can see not just our long-form videos for the music and the literature as well. People's paying willingness is increasing that we are certain that the paying is still the clear chance. And Dr. Wang will follow it with the next question.
spk05: In fact, we still believe that the main income for users, especially monthly subscription fees, is not the only income. In the current situation, why can't this income cover content costs or all costs? In fact, looking back at the history of the past nine to ten years, most of it was caused by competition. Now, the monthly fee for ITE members is $19.8. It was the price I discussed with Yang Xiaohua nine years ago. At that time, there was no service to pay for buying content in China, but there was a pirated DVD for watching movies. We calculated that an average user would watch four movies per month. The benchmark of our target audience is not the same industry. We can only use DaoBanDVD as the benchmark. At that time, DaoBanDVD was 5 yuan a film, so it was 4.20 yuan, and it was 19.8 yuan before 0.2 yuan. It's been like this for nine years, but because of competition, there has been no way to evaluate it. Uh, uh, non-members have to watch ads on this side, non-members and members have to watch ads on the page, or ads on this banner. They are all ways to increase income. At the same time, there are games, literature, comics, and so on, e-commerce, and so on. Other income, these income are all increased income.
spk20: Regarding our business model data, we firmly believe that our major source for our revenue is still the subscriber revenue. That the subscriber revenue still cannot cover our cost is because the past nine or 10 years intense competition. Currently that our monthly fee is RMB 19.8, it is calculated and made by the end of the discussion between me and a few years ago. We didn't have much of the benchmark regarding the industry at that moment. That's why we consider things that Reading the data, normal users in China, numerous audience in China that normally will watch four movies per month, and the unlicensed DVD is selling at the price of five RMB for one disc. So combined together, it is of 20 RMB for a month. That's why we made our price for the monthly fee as 19.8 RMB. So it still is a relative low regarding because of the computation. It cannot cover our content cost right now. So with other revenues together with advertising revenues, because we have different formats of our advertisers, advertisements, there's some subscriber wheel advertisers, advertisements, and also non-subscriber advertisers as well. With other added value monetization methods including animation, literature, and so on that we believe combine all of these revenues together, we can achieve the probability to recover our content at least. Thank you.
spk04: Thank you.
spk21: Thank you. Your last question comes from the line of Bo Pei from OpenHammer. Please ask your question.
spk11: I would translate for myself. I want to know more about the 12-episode drama series like The Bad Kids had very good feedback in 2Q. And then I want to know in terms of ROI, is there any difference between this short drama series and the long one we use to produce more? And then in the future, is that a key area for us to invest? Thank you very much.
spk06: Okay, I'm Wang Xiaohui, and I'll answer this question. From the perspective of the broadcast and the production ratio, this time the short drama in the theater is very good. In the future, we will still be suitable for strong plot, strong plot, and require these body parts that are relatively strong in performance to strengthen the creation of short dramas. It will definitely add more investment. The second piece is As the Chief Counsel's Officer, shall we just answer this question?
spk20: I think that we are very appreciative and very happy to receive the very positive feedback and better ROI from the MIST Theatre since we launched it, and especially the titles you mentioned, The Bad Kid. And we definitely will invest more on this type of intense suspense dramas and other themed theaters as well. But of course we will not invest less on the longer episode dramas as well because they have different expressions and different ways to attract our users. No matter the longer episodes or the shorter episodes, we definitely will continue to improve our capabilities to provide more high-quality content to our users. Mr. Wugong will also add some points on this topic.
spk05: So this kind of trap episode shot drama titus did that. The content cost per episode is a little bit higher than the longer episode dramas.
spk06: But it is ability to attract subscribers is
spk20: as strong as the other form of the drama titles so that we can see a little bit better ROI for this kind of child episode drama. Thank you.
spk21: Thank you. Now I would now like to hand the conference back to the management. Presenter, please continue.
spk20: Thank you for joining us today. Thank you very much. Have a good day.
spk21: Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.
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